Central Valley Ag v. United States ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CENTRAL VALLEY AG ENTERPRISES,  No. 05-16177
Plaintiff-Appellant, D.C. No.
v.  CV-03-06366-AWI
UNITED STATES OF AMERICA, (SMS)
Defendant-Appellee.
 OPINION
Appeal from the United States District Court
for the Eastern District of California
Anthony W. Ishii, District Judge, Presiding
Argued and Submitted
March 13, 2007—San Francisco, California
Filed June 25, 2008
Before: Melvin Brunetti, William A. Fletcher, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Brunetti
7353
7356 CENTRAL VALLEY v. UNITED STATES
COUNSEL
Scott M. Reddie, Hilton A. Ryder and Todd W. Baxter,
McCormick, Barstow, Sheppard, Wayte & Carruth LLP,
Fresno, California; and Myron L. Frans and Walter A. Pick-
hardt, Faegre & Benson LLP, Minneapolis, Minnesota, for the
plaintiff-appellant.
Thomas J. Clark, Gilbert S. Rothenberg and Michelle B.
O’Connor, Tax Division, U.S. Department of Justice, Wash-
ington, D.C., for the defendant-appellee.
OPINION
BRUNETTI, Circuit Judge:
This bankruptcy appeal involves the intersection of 11
U.S.C. § 505(a) of the Bankruptcy Code, which generally
authorizes bankruptcy courts to redetermine a debtor’s tax lia-
bility, and the Tax Equity And Fiscal Responsibility Act of
1982 (“TEFRA”), which provides that the tax treatment of
partnership items ordinarily must be determined at the part-
nership level. After Chapter 11 debtor Central Valley Ag
Enterprises filed an objection to the Government’s $13.1 mil-
lion tax claim in its bankruptcy proceeding, the district court
dismissed the action on the basis that the statutory res judicata
provision in 11 U.S.C. § 505(a)(2)(A) deprives it of subject
matter jurisdiction to review the tax treatment of any partner-
ship item that has been administratively determined by the
CENTRAL VALLEY v. UNITED STATES 7357
Internal Revenue Service and has become final pursuant to
TEFRA. We disagree with that determination and additionally
hold that 11 U.S.C. § 505(a)(1) grants the district court sub-
ject matter jurisdiction to review the tax treatment of Central
Valley’s partnership items, notwithstanding TEFRA.
I
In 1991, Central Valley’s wholly owned subsidiary, Orange
Coast Enterprises, acquired a 98 percent partnership share in
Astropar Leasing Partnership. Although Central Valley is not
a direct partner in Astropar, for TEFRA purposes Central Val-
ley qualifies as an “indirect partner” by virtue of its ownership
of Orange Coast, which is a direct partner in Astropar and a
“pass-thru partner” in relation to its owner, Central Valley.
See I.R.C. § 6231(a)(2), (9), (10). The only other partner in
Astropar holding the remaining two percent share is a partner-
ship called STM-CIG.
The owners of STM-CIG are the promoter and the officers
of the promoter of a lease-stripping tax shelter,1 in which
Astropar participated. As a result of its lease-stripping
arrangements, Astropar reported significant losses on its part-
nership tax returns for 1993, 1994 and 1995. Because partner-
ships are not taxed, 98 percent of Astropar’s reported losses
passed to Orange Coast and then to Central Valley, thereby
decreasing its reported tax liability. The losses were eventu-
ally disallowed, however, after the IRS determined that there
was no economic substance to the tax shelter. Central Valley
was accordingly left with a tax deficiency.
The IRS made its adjustments to Astropar’s returns in 1996
and 1998. In 1998, Orange Coast and STM-CIG, as the Astro-
1
The IRS defines “lease strips” as “transactions in which one participant
claims to realize rental or other income from property and another partici-
pant claims the deductions related to that income (for example, deprecia-
tion or rental expenses).” I.R.S. Notice 2003-55, 2003-2 C.B. 395.
7358 CENTRAL VALLEY v. UNITED STATES
par partners, filed protests on Astropar’s behalf regarding the
tax years 1993 and 1994, and SMT-CIG filed another protest
regarding the tax year 1995. The protests led to a conference
with the IRS Appeals Office, with Central Valley participat-
ing through the Astropar partners. Despite the Appeals
Office’s name, such conferences are informal and more
closely resemble alternative dispute resolution than an admin-
istrative hearing. See Treas. Reg. § 601.106(c). After the con-
ference failed to produce a settlement, the IRS Appeals Office
sustained in full the IRS’s proposed adjustments to Astropar’s
tax returns. The IRS mailed the Notice of Final Partnership
Administrative Adjustment (“FPAA”) on March 28, 2001.
Under TEFRA, the Astropar partners then had 150 days to
file a petition for a readjustment in either the Tax Court, a dis-
trict court, or the Court of Federal Claims. I.R.C. § 6226(a),
(b)(1). If any partner did so, all partners would have been
deemed parties to the action. Id. § 6226(c). None of the part-
ners filed such a petition, however.
Instead, on December 3, 2001, 250 days after the FPAA
issued (or 100 days after the TEFRA readjustment period
expired), Central Valley filed a voluntary Chapter 11 bank-
ruptcy petition. The bankruptcy estate included approximately
$7.68 million in assets and $7.99 million in liabilities, $7.89
million of which were unsecured, nonpriority claims. In the
bankruptcy court, the Government filed an unsecured priority
claim for the tax years 1993, 1994 and 1995, totaling $13.1
million — more than all the assets in the estate. Central Val-
ley responded by filing the underlying objection to the tax
claim.
On the Government’s motion, the district court withdrew
the reference, transferring jurisdiction over Central Valley’s
objection from the bankruptcy court to the district court. The
Government then moved for summary judgment, contending
that the time to contest the FPAA under TEFRA had elapsed
prior to commencement of the bankruptcy case and that, con-
CENTRAL VALLEY v. UNITED STATES 7359
sequently, the district court lacked subject matter jurisdiction
to consider the partnership items, which were final under
TEFRA. As to 11 U.S.C. § 505 of the Bankruptcy Code,
which ordinarily provides for jurisdiction to redetermine a
debtor’s tax items, the Government conceded that the statu-
tory res judicata provision of subsection (a)(2)(A) was inap-
plicable because “the default of the FPAA was not ‘contested’
before an ‘administrative tribunal’ and so the tax determina-
tion of the debtor does not fall within the exclusionary lan-
guage of Section 505(a)(2)(A).” Nevertheless, the
Government contended that subsection (a)(1) did not grant
jurisdiction in the first place because the limitations period on
readjustments under TEFRA, I.R.C. § 6226, had expired and
therefore the IRS’s determinations regarding the partnership
items pursuant to TEFRA were final and binding.
Treating the Government’s motion for summary judgment
as a motion to dismiss for lack of subject matter jurisdiction
under Federal Rule of Civil Procedure 12(b)(1), the district
court granted the dismissal. In doing so, however, the court
rejected both parties’ readings of TEFRA and the Bankruptcy
Code. Notwithstanding the Government’s concession to the
contrary, the district court ruled that the mere “opportunity”
for court review under TEFRA brought the IRS’s adjustment
determinations within the statutory res judicata provision of
11 U.S.C. § 505(a)(2)(A). Consequently, the court dismissed
Central Valley’s objection to the tax claim for lack of subject
matter jurisdiction, deemed the IRS’s determination of the
partnership items incontestible within the context of the bank-
ruptcy proceedings, and “vacated” its order withdrawing the
reference, thereby returning the matter to the bankruptcy
court.
We have jurisdiction under 28 U.S.C. § 1291 and review de
novo the district court’s dismissal for lack of subject matter
jurisdiction. Am. Principals Leasing Corp. v. United States,
904 F.2d 477, 480 (9th Cir. 1990).
7360 CENTRAL VALLEY v. UNITED STATES
II
[1] We begin with the language of the governing statute.
Section 505(a) of the Bankruptcy Code provides:
(a)(1) Except as provided in paragraph (2) of this
subsection, the court may determine the amount or
legality of any tax, any fine or penalty relating to a
tax, or any addition to tax, whether or not previously
assessed, whether or not paid, and whether or not
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction.
(2) The court may not so determine—(A) the amount
or legality of a tax, fine, penalty, or addition to tax
if such amount or legality was contested before and
adjudicated by a judicial or administrative tribunal of
competent jurisdiction before the commencement of
the case under this title; . . . .
11 U.S.C. § 505(a). The statute is “jurisdictional” insofar as
it “confers on the bankruptcy court authority to determine cer-
tain tax claims” or deprives it of that authority. In re Custom
Distribution Servs. Inc., 224 F.3d 235, 239-40 (3d Cir. 2000);
accord Bunyan v. United States (In re Bunyan), 354 F.3d
1149, 1151 (9th Cir. 2004).
[2] Section 505(a) is also a statutory embodiment of tradi-
tional principles of res judicata. Mantz v. Cal. State Bd. of
Equalization (In re Mantz), 343 F.3d 1207, 1213-14 (9th Cir.
2003). If a tax claim has been litigated to a final judgment
prior to the commencement of the bankruptcy case, the bank-
ruptcy court lacks jurisdiction to consider the claim. See, e.g.,
Baker v. IRS (In re Baker), 74 F.3d 906, 909 (9th Cir. 1996)
(per curiam) (stipulated judgment in Tax Court after petition
and answer). Otherwise, the court has jurisdiction notwith-
standing a default judgment or a taxpayer’s failure to timely
pursue its remedies under the applicable tax laws, which
CENTRAL VALLEY v. UNITED STATES 7361
would ordinarily (i.e., outside of bankruptcy) prohibit redeter-
mination of the tax assessment. City Vending of Muskogee,
Inc. v. Okla. Tax Comm’n, 898 F.2d 122, 124 (10th Cir.
1990).
One of the purposes of § 505, and in particular the purpose
of the requirement that the tax matter be “contested,” is to
“protect[ ] a debtor from being bound by a pre-bankruptcy tax
liability determination that, because of a lack of financial
resources, he or she was unable to contest.” Mantz, 343 F.3d
at 1211. And correspondingly, § 505 protects a debtor’s credi-
tors “from the dissipation of an estate’s assets in the event that
the debtor failed to contest the legality and amount of taxes
assessed against it.” New Haven Projects LLC v. City of New
Haven (In re New Haven Projects LLC), 225 F.3d 283, 288
(2d Cir. 2000) (internal quotation marks omitted). Such pro-
tections are particularly relevant in the instant case, as the
Government’s tax claim far exceeds Central Valley’s assets
and has priority over nearly all of its other liabilities, which
predominantly consist of unsecured, nonpriority claims.
Not surprisingly, the federal tax laws complicate this pic-
ture. Under the Internal Revenue Code, partnerships are not
taxable entities; they pay no federal income taxes and file
only informational returns. I.R.C. §§ 701, 6031. Instead, the
individual partners are separately or individually liable for
income taxes on their distributive share of partnership items.
Id. §§ 701, 702. Accordingly, prior to the enactment of
TEFRA in 1982, Pub L. No. 97-248, 96 Stat. 324, “adjust-
ments of partnership items were determined at the individual
partners’ level, resulting in duplication of administrative and
judicial resources and inconsistent results between partners.”
Randell v. United States, 64 F.3d 101, 103 (2d Cir. 1995).
[3] TEFRA did not change the taxation of partners and
partnerships; rather, it changed only the procedures for deter-
mining the appropriate tax treatment of partnership items.
Under TEFRA, “the tax treatment of any partnership item
7362 CENTRAL VALLEY v. UNITED STATES
(and the applicability of any penalty, addition to tax, or addi-
tional amount which relates to an adjustment to a partnership
item) shall be determined at the partnership level.” I.R.C.
§ 6221. Accordingly, each partner’s individual income tax
return ordinarily must be consistent with the partnership’s
informational return. Id. § 6222(a). Inconsistent treatment, if
unwarranted, may result in a “computational adjustment,”
defined as a “change in the tax liability of a partner which
properly reflects the treatment . . . of a partnership item.” Id.
§ 6231(a)(6).
If the IRS issues an FPAA making adjustments to a partner-
ship’s taxable items, as it did in this case, the individual part-
ners may contest the FPAA by filing a petition for
readjustment with either the Tax Court, a federal district
court, or the Court of Federal Claims.2 Id. § 6226(a). The lim-
itations period for filing such a petition is 150 days from the
mailing of the FPAA—i.e., 90 days for the tax matters part-
ner, then 60 days for any notice partner or five-percent group.
Id. § 6226(a), (b)(1). But notwithstanding the fact that “part-
nership items” are to be determined at the “partnership level”
under TEFRA, id. § 6221, the partnership is not a party to the
action; the individual partners are. See 1983 W. Reserve Oil
& Gas Co. v. Comm’r, 95 T.C. 51, 59 (1990), aff’d, 995 F.2d
235 (9th Cir. 1993) (table). Only the partners are authorized
to file the petition for readjustment, and once it is filed all the
partners are ordinarily treated as parties to the action. See
I.R.C. § 6226(a)-(c).
[4] TEFRA has been construed as generally requiring “that
all challenges to adjustments of partnership items be made in
a single, unified agency proceeding.” Kaplan v. United States,
133 F.3d 469, 473 (7th Cir. 1998) (dismissing a refund action
under I.R.C. § 7422(h)). Generally, once “the partnership item
has been resolved at the partnership level [it] cannot be con-
2
For ease of reference to all three courts, we will refer to an action
under § 6226 as a “Tax Court” case.
CENTRAL VALLEY v. UNITED STATES 7363
tested at the individual partner level.” Randell, 64 F.3d at 104(dismissing a claim for injunctive relief under the Anti-
Injunction Act, I.R.C. § 7421(a)). However, each of these
cases involved an Internal Revenue Code section that
expressly barred the specific type of claim in question, and
none involved bankruptcy proceedings.
The pre-TEFRA treatment of partnership items at the indi-
vidual partners’ level presented no obstacle to a bankruptcy
court’s jurisdiction under 11 U.S.C. § 505 to redetermine part-
nership items in determining a partner-debtor’s tax liability.
Partnerships presented jurisdictional problems only regarding
the non-debtor partners that sought to have their tax liability
determined by the bankruptcy court along with the partner-
debtor’s. Bankruptcy jurisdiction was held not to extend to
such non-debtor partners because § 505 applied only to the
tax liability of the debtor. Am. Principals, 904 F.2d at 481(considering pre-TEFRA tax years). There was no
partnership-related jurisdictional limitation as to the partner-
debtor, however. In fact, this court expressly recognized that
the determination of the tax liability of a partner-debtor for
purposes of resolving an IRS tax claim “would require a
determination of the tax consequences of the partnerships’
activities.” Id. In other words, bankruptcy courts had jurisdic-
tion to redetermine the tax treatment of partnership items.
After the enactment of TEFRA, this jurisdictional law did
not change. We continued to follow the rule of American
Principals that bankruptcy courts have jurisdiction over the
tax liability of a debtor-partner but lack such jurisdiction over
any non-debtor partners. See Third Dividend/Dardanos
Assocs. v. Comm’r, 88 F.3d 821, 823 (9th Cir. 1996). How-
ever, combining that rule with TEFRA created problems in
Tax Court cases involving partnerships. Because all partners
are deemed parties to a Tax Court proceeding pursuant to
I.R.C. § 6226(c), a debtor-partner would be a party to that
proceeding in addition to a bankruptcy proceeding. Conse-
quently, the Tax Court case was subject to the automatic stay
7364 CENTRAL VALLEY v. UNITED STATES
under 11 U.S.C. § 362(a)(8), which stayed the Tax Court case
not only as to the debtor-partner but as to all other partners as
well. Thus, “ ‘the stay imposed by the bankruptcy petition
would halt the commencement or continuation of the partner-
ship proceeding, and would prevent the IRS and the remain-
ing partners from litigating whether any adjustments were
appropriate to the partnership return.’ ” Katz v. Comm’r, 335
F.3d 1121, 1127 (10th Cir. 2003) (quoting the Commis-
sioner).
[5] To avoid this result, Treasury Regulation
§ 301.6231(c)-7T was issued to sever the debtor-partner from
the Tax Court case by deeming any “partnership items” of the
debtor-partner to be “nonpartnership items” not subject to
TEFRA. See I.R.C. § 6231(a)(3)-(4), (c)(2); Treas. Reg.
§ 301.6231(c)-7T.3 Those same items remain “partnership
items” as to the remaining non-debtor partners in the Tax
Court case, however. The effect of this redefinition is two
separate proceedings—one in bankruptcy court involving the
debtor-partner, and one in Tax Court involving the remaining
partners—regarding the same partnership items.
The case before us is quite similar to the scenario described
above insofar as Central Valley has sought to litigate the
Astropar partnership items in a bankruptcy proceeding, leav-
ing its non-debtor Astropar partner, STM-CIG, to separately
litigate the same partnership items in Tax Court. There is just
one major twist in this case: none of the Astropar partners
timely pursued their TEFRA remedies by filing a petition for
readjustment in Tax Court (or any other qualifying court)
within the 150-day TEFRA limitations period. Nor did Cen-
tral Valley file for bankruptcy within that limitations period.
Instead, Central Valley filed its voluntary Chapter 11 petition
100 days after the TEFRA limitations period had expired and
3
The “T” signifies a temporary regulation. The identical regulation later
became permanent, see Treas. Reg. § 301.6231(c)-7, but not until after the
tax years at issue in this case.
CENTRAL VALLEY v. UNITED STATES 7365
the IRS’s determinations of the Astropar partnership items
became final for TEFRA purposes.
III
[6] The district court concluded that the IRS Appeals
Office’s issuance of an FPAA, the opportunity for judicial
review through the filing of a petition for readjustment in Tax
Court, and the fact that the FPAA became final when no part-
ner sought such review within TEFRA’s limitations period,
satisfy the statutory res judicata provision in 11 U.S.C.
§ 505(a)(2)(A). We disagree. A conference with and the issu-
ance of an FPAA by the IRS Appeals Office do not satisfy the
statutory requirements that a tax matter be “contested before
and adjudicated by a judicial or administrative tribunal”
within the meaning of the statute.
[7] The district court erred in concluding that the mere
opportunity for judicial review under TEFRA is sufficient to
satisfy the statute and that it is immaterial whether or not a
party chooses not to avail itself of that opportunity by filing
a petition for readjustment in Tax Court. Section 505(a)(2)(A)
requires that a matter be actually contested and adjudicated
before it is entitled to preclusive effect in a bankruptcy pro-
ceeding. See Tapp v. Fairbanks N. Star Borough (In re Tapp),
16 B.R. 315, 318-20 (Bankr. D. Alaska 1981) (“Congress did
not intend a default judgment to preclude the bankruptcy
court’s determination of the amount and validity of State
taxes and penalties.”).
[8] According to the definitions we have previously
adopted, a tax matter is “contested” for purposes of
§ 505(a)(2)(A) “if, prior to the bankruptcy filing, the debtor
had filed a petition in the Tax Court and the IRS had filed an
answer.” Baker, 74 F.3d at 909; accord IRS v. Teal (In re
Teal), 16 F.3d 619, 621 & n.4 (5th Cir. 1994) (quoting the
legislative history). “A matter is adjudicated when a judgment
of a court of competent jurisdiction has been decreed,” mean-
7366 CENTRAL VALLEY v. UNITED STATES
ing that a tax matter is adjudicated when the Tax Court enters
its judgment. Baker, 74 F.3d at 909 (internal quotation marks
and citation omitted). Accordingly, as none of Astropar’s
partners ever filed a petition for readjustment in Tax Court,
the tax treatment of its partnership items has never been con-
tested or adjudicated within the meaning of § 505(a)(2)(A).
[9] It is immaterial that the Astropar partners filed protests
with the IRS, participated in a conference with the IRS
Appeals Office, and received an FPAA. Despite the division’s
name, proceedings before the IRS Appeals Office more
closely resemble a settlement conference than a hearing
before an administrative tribunal. The governing regulations
refer to the proceedings as a “conference” rather than a “hear-
ing,” describe them as “informal,” and focus on the “settle-
ment” of disputes and the “settlement authority” of the
Appeals Officers. Treas. Reg. § 601.106(c), (d); see also id.§ 601.106(a)(1)(iii) (providing for how a taxpayer may “re-
quest Appeals consideration”). The Internal Revenue Manual
likewise describes the Appeals Office as the IRS’s “dispute
resolution forum” with the “authority to consider and negoti-
ate settlements,” I.R.M. 8.1.1.2, and provides that its mission
is “to resolve tax controversies, without litigation,” I.R.M.
8.1.1.1. Accordingly, the Appeals Officer or Settlement Offi-
cer does not act as a fact-finder or preside over adversarial
proceedings in the model of an administrative law judge. In
cases not docketed in the Tax Court, the district director for
the IRS is not even represented in conferences with the
Appeals Office unless the Appeals Officer and the district
director deem it advisable. See Treas. Reg. § 601.106(c).
There are no provisions for taxpayer discovery or for wit-
nesses to be subpoenaed, testimony under oath is not taken
(although affidavits may be required), and there are no provi-
sions requiring that the proceedings be recorded or that any
particular evidentiary rules be followed.
As the Government commendably concedes, Appeals
Office conferences are materially different than the proceed-
CENTRAL VALLEY v. UNITED STATES 7367
ings that were determined by the Fifth Circuit to satisfy
§ 505(a)(2)(A) in Texas Comptroller of Public Accounts v.
Trans State Outdoor Advertising Co. (In re Trans State Out-
door Advertising Co.), 140 F.3d 618 (5th Cir. 1998). In that
case, the taxpayer received a formal hearing presided over by
an administrative law judge, who was authorized by the Texas
Administrative Code to examine witnesses, rule on evidence,
and propose a decision to the Comptroller. Id. at 620-21. The
rules of evidence promulgated by the Texas Supreme Court
apply to such hearings, witnesses and documents can be sub-
poenaed, witnesses testify under oath, and the hearings are
recorded. Id. at 621. Thus, the Fifth Circuit determined that
“the proceeding before the administrative judge was quasi-
judicial and therefore amounted to an adjudication by an
‘administrative or judicial tribunal’ under § 505(a)(2)(A).” Id.
[10] Because the same cannot be said of conferences with
the IRS Appeals Office, and the IRS’s tax treatment of Cen-
tral Valley’s partnership items was never contested before and
adjudicated by the Tax Court or any other tribunal of compe-
tent jurisdiction, we conclude that 11 U.S.C. § 505(a)(2)(A)
does not deprive the district court of subject matter jurisdic-
tion over Central Valley’s objection to the Government’s tax
claim.
IV
[11] The Government nevertheless contends that the dis-
missal for lack of subject matter jurisdiction may be affirmed
on an alternative ground. Putting aside the jurisdiction strip-
ping provision of § 505(a)(2)(A), the Government argues that
the jurisdiction granting provision of § 505(a)(1) does not
extend to Central Valley’s partnership items in the first place.
We disagree.
The Bankruptcy Code broadly authorizes the district court
to “determine the amount or legality of any tax, any fine or
penalty relating to a tax, or any addition to tax, whether or not
7368 CENTRAL VALLEY v. UNITED STATES
previously assessed, whether or not paid, and whether or not
contested before and adjudicated by a judicial or administra-
tive tribunal of competent jurisdiction.” 11 U.S.C.
§ 505(a)(1). In American Principals, 904 F.2d at 481, we rec-
ognized that § 505 authorizes district courts to exercise bank-
ruptcy jurisdiction to determine the tax consequences of
partnership activities with respect to a debtor-partner’s tax lia-
bility for pre-TEFRA taxable years. We held that district
courts lack bankruptcy jurisdiction over the tax treatment of
partnership items only with regard to any non-debtor partners.
Id. at 481-82. And in Third Dividend, 88 F.3d at 823, we
determined that the rule of American Principals is also appli-
cable to post-TEFRA taxable years. Accordingly, we held that
despite the bankruptcy court’s exercise of jurisdiction over a
debtor-partner’s partnership items (which were converted to
non-partnership items pursuant to TEFRA and corresponding
regulations because of the bankruptcy filing), the bankruptcy
court lacked jurisdiction over the non-debtor partners’ tax lia-
bility as to the same partnership items. Id. at 822, 823. Indeed,
we so held even though the non-debtor partners were the sole
owners of the debtor-partner and therefore had pass-thru lia-
bility as to the partnership items in question. Id. at 822.
Despite these precedents, however, the Government con-
tends that we should read § 505(a)(1) as applying only to a
debtor’s ultimate “tax liability” and not to “partnership
items,” which TEFRA now requires to “be determined at the
partnership level.” I.R.C. § 6221. Under the Government’s
conception, the bankruptcy court would have jurisdiction to
determine Central Valley’s bottom-line tax liability, but in
doing so the court would be required to accept as conclusive
the partnership-level adjustments determined by the IRS.
Essentially, that line item would be beyond review.
A
We reject the Government’s proposed distinction between
“tax liability” and “partnership items” for purposes of apply-
CENTRAL VALLEY v. UNITED STATES 7369
ing § 505(a)(1). The statute is not limited to “tax liability” and
makes no such distinction. Even if Central Valley’s bottom-
line tax liability is the ultimate concern with respect to the
Government’s tax claim, as a means to that end § 505(a)(1)
authorizes the district court to determine “the amount or legal-
ity of any tax, any fine or penalty relating to a tax, or any
addition to tax.” 11 U.S.C. § 505(a)(1).
Rather than distinguish partnership items from a partner’s
tax liability, the decisions of this court as well as the Tax
Court have treated the two as interrelated and inseparable for
jurisdictional purposes. As a partnership’s activities have tax
consequences only for the partners, the existence or lack of
jurisdiction over a partner’s tax liability corresponds to the
existence or lack of jurisdiction over any partnership items
affecting that tax liability.
In American Principals, for example, we considered a dis-
trict court’s bankruptcy jurisdiction under § 505 to determine
the tax consequences for a debtor-partner and various non-
debtor partners from the activities of twenty-four partnerships,
which were also debtors in the bankruptcy proceeding. 904
F.2d at 480. The district court dismissed for lack of bank-
ruptcy jurisdiction as to all except the debtor-partner, and we
affirmed. As to the non-debtor partners, we reasoned that
because § 505 does not extend bankruptcy jurisdiction to par-
ties other than the debtor, the statute does not permit a bank-
ruptcy court to determine either the tax liabilities of non-
debtor partners or the tax consequences for them of the
debtor-partnerships’ activities. Id. at 481. Rejecting the non-
debtor partners’ attempt to piggyback on the partnerships’
debtor status, we reasoned that because partnerships as non-
taxable entities have no tax liability and § 505 extends only
to debtors with tax liability, the statute cannot be read to
authorize bankruptcy courts to determine the tax conse-
quences for third parties of the debtor partnerships’ activities.
Id.
7370 CENTRAL VALLEY v. UNITED STATES
As to the lone debtor-partner, by contrast, the same reason-
ing led to the opposite result. Section 505 authorized the dis-
trict court to exercise bankruptcy jurisdiction to determine
both the tax liability of the debtor partner and, as a necessary
component of that liability, the tax consequences of the part-
nerships’ activities. We stated: “[T]he district court has bank-
ruptcy jurisdiction to determine the tax liability of the debtor
APLC and . . . since APLC is a partner in each of the partner-
ships such a determination would require a determination of
the tax consequences of the partnerships’ activities.” Id.
Although American Principals concerned pre-TEFRA tax
years, the enactment of TEFRA made no changes to the legal
principles underlying our decision. Indeed, TEFRA’s own
language reaffirms the fundamental interrelatedness between
partnership items and a partner’s tax liability. For example,
consistent with the fact that only the partners are liable for
taxes on a partnership’s activities, under TEFRA the only par-
ties to a Tax Court proceeding are the partners, not the part-
nership. See I.R.C. § 6226(a), (c). And just as tax liability on
partnership items is automatically passed through to the part-
ners, TEFRA provides that the adjustment of a partnership
item results in a “computational adjustment,” which is “the
change in the tax liability of a partner which properly reflects
the treatment . . . of a partnership item.” I.R.C. § 6231(a)(6).
TEFRA even defines a “partner” as a “person whose income
tax liability . . . is determined in whole or in part by taking
into account directly or indirectly partnership items of the
partnership.” I.R.C. § 6231(a)(2)(B).
We are not the first to recognize this consistency between
pre- and post-TEFRA law and the continuing validity of our
reasoning in American Principals. In 1983 Western Reserve
Oil & Gas Co. v. Comm’r, 95 T.C. 51, 57 (1990), aff’d, 995
F.2d 235 (9th Cir. 1993) (table), the Tax Court employed sim-
ilar reasoning to decide that a debtor-partnership’s bankruptcy
filing did not automatically stay a partnership proceeding in
Tax Court involving adjustments to the partnership’s tax
CENTRAL VALLEY v. UNITED STATES 7371
return and the corresponding tax liabilities of the non-debtor
partners. The court explained:
[A] partnership proceeding in the Tax Court . . . ulti-
mately affects only the tax liability of individual
partners. The purpose of a partnership proceeding in
the Tax Court is to redetermine the adjustments to a
partnership’s return determined in an FPAA. Ulti-
mately, however, it is the tax liability of the individ-
ual partners which is affected by the redetermination
of the adjustments to the return of the partnership.
To argue that the partnership proceeding requires the
Tax Court to make determinations with respect to the
items of income, gain, loss, or credit of the partner-
ship, rather than the individual partners, and that a
partnership proceeding involving a bankrupt partner-
ship thus ‘concerns’ the partnership, not the partners,
is to exalt form over substance.
Id. Accordingly, in comparing and contrasting our decision in
American Principals, the Tax Court expressly dispelled the
notion that TEFRA had altered the legal principles underlying
that decision. The court explained that even though TEFRA
“has changed the process by which partnership adjustments
are reviewed,” the taxation of partnership items and the tax
liability of individual partners remain fundamentally interre-
lated. Both before and after TEFRA, “the starting point in
determining a deficiency against an individual partner [is] the
examination of the partnership return.” Id. at 58-59.
Not long thereafter, we expressly adopted the Tax Court’s
reasoning in Third Dividend/Dardanos Assocs. v. Comm’r, 88
F.3d 821, 823 (9th Cir. 1996) (quoting 1983 Western, 95 T.C.
at 57). We added:
While TEFRA elevates the assessment of partnership
items to the entity level, the partners whose tax lia-
bilities are “affected by the outcome of a partnership
7372 CENTRAL VALLEY v. UNITED STATES
proceeding continue to be the real parties in interest
in any partnership audit or litigation proceeding.”
The main concern of the unified post-TEFRA tax
assessment proceeding is to aggregate the partners
for a uniform assessment of tax liability, not to trans-
form the partnership itself into the main interested
party.
Id. (quoting Chef’s Choice Produce, Ltd. v. Comm’r, 95 T.C.
388, 396 (1990)).
Thus, rather than distinguish a partner’s tax liability from
its partnership items, we have consistently treated them as
fundamentally interrelated and inseparable in considering the
proper forum for a partner’s tax dispute. Accordingly, we
reject the Government’s proposed distinction and continue to
read § 505 of the Bankruptcy Code as extending bankruptcy
jurisdiction not only to the ultimate tax liability of a debtor
partner but also to any partnership items affecting that liabil-
ity.
B
[12] The Government alternatively asserts that even if the
Bankruptcy Code can be read to provide for bankruptcy juris-
diction over partnership items, we should read TEFRA’s pro-
vision that “the tax treatment of any partnership item . . . shall
be determined at the partnership level,” I.R.C. § 6221, as a
later-enacted limitation on bankruptcy jurisdiction. In the
Government’s view, § 6221 of TEFRA effectively overrides
§ 505 of the Bankruptcy Code and therefore generally pre-
cludes the exercise of bankruptcy jurisdiction over partnership
items except as TEFRA may otherwise allow. We disagree.
Nothing in TEFRA speaks to the jurisdiction of the bank-
ruptcy courts, and we decline to read TEFRA’s “partnership
level” provision as impliedly overriding the Bankruptcy
Code’s broad jurisdictional provisions. In Third Dividend, a
CENTRAL VALLEY v. UNITED STATES 7373
post-TEFRA case, the only partner that filed for bankruptcy
was Dividend Development Corporation (DDC), yet it was
undisputed that the bankruptcy court had jurisdiction over
DDC’s partnership items. 88 F.3d at 821-22. The only ques-
tion was whether that jurisdiction also extended to DDC’s
shareholders, who incurred pass-thru liability as to the same
partnership items because DDC was an S corporation. Id. at
822. We distinguished DDC from its shareholders for juris-
dictional purposes on the sole basis that DDC had filed for
bankruptcy and its shareholders had not. Id. at 823.
The Government would have us read cases like Third Divi-
dend differently. It maintains that the exercise of bankruptcy
jurisdiction over partnership items is still possible after
TEFRA only because the Secretary of the Treasury issued
Treasury Regulation § 301.6231(c)-7T as an exception to
TEFRA’s general limitation on bankruptcy jurisdiction. The
regulation provides that the partnership items “shall be treated
as nonpartnership items” with respect to any partner who is
named as a debtor in a bankruptcy proceeding. Treas. Reg.
§ 301.6231(c)-7T(a). It was evidently that regulation to which
we were referring in Third Dividend when we stated that
“DDC . . . was no longer a party to tax assessment administra-
tive proceedings because its partnership items had converted
to nonpartnership items under § 6231 and the corresponding
temporary Treasury regulations.” 88 F.3d at 822. Unlike the
debtor in Third Dividend, however, Central Valley cannot
avail itself of § 301.6231(c)-7T because a companion regula-
tion provides that the regulations shall not apply where the
time period for contesting the FPAA under TEFRA has
expired. See Treas. Reg. § 301.6231(c)-3T.
The problem with the Government’s argument is that it
misapprehends the purpose, and thus the relevance, of
§ 301.6231(c)-7T. The regulation has nothing to do with pre-
venting TEFRA from divesting bankruptcy courts of jurisdic-
tion they would otherwise possess under the Bankruptcy
Code. Quite the opposite, its express purpose is to prevent
7374 CENTRAL VALLEY v. UNITED STATES
bankruptcy proceedings from interfering with the operation of
TEFRA. See Treas. Reg. § 301.6231(c)-7T(a) (“The treatment
of items as partnership items with respect to a partner named
as a debtor in a bankruptcy proceeding will interfere with the
effective and efficient enforcement of the internal revenue
laws.”); see also I.R.C. § 6231(c)(2). And it does so by divest-
ing the Tax Court of jurisdiction over a debtor-partner and its
partnership items. See, e.g., Third Dividend, 88 F.3d at 822;
First Blood Assocs. v. Comm’r, 75 T.C.M. (CCH) 2138(1998); Computer Programs Lambda, Ltd. v. Comm’r, 89
T.C. 198, 202 (1987) (debtor barred from commencing a Tax
Court action after filing for bankruptcy).
Treasury Regulation § 301.6231(c)-7T was specifically
designed to avoid the effects of the automatic stay. Because
all partners are deemed parties to a TEFRA partnership pro-
ceeding, the filing of a bankruptcy petition by any partner
would automatically stay the commencement or continuation
of any such proceeding. 11 U.S.C. § 362(a)(8).4 And because
the stay applies to all parties, the Tax Court would be pre-
vented from adjudicating the appropriateness of any adjust-
ments to the partnership return or determining the tax
liabilities of any of the partners. See Katz v. Comm’r, 335
F.3d 1121, 1127 (10th Cir. 2003) (quoting the Commissioner
of Internal Revenue). The purpose of severing the debtor-
partner is thus “to prevent the automatic stay . . . from imped-
ing the TEFRA proceeding,” First Blood, 75 T.C.M. (CCH)
2138, and thereby to “promote[ ] the efficient resolution of
disputes between the IRS and the other partners,” Katz, 335
F.3d at 1127 (paraphrasing the Commissioner). The practical
4
Prior to the 2005 amendments, 11 U.S.C. § 362(a)(8) provided that the
filing of a bankruptcy petition operated as a stay, applicable to all entities,
of “the commencement or continuation of a proceeding before the United
States Tax Court concerning the debtor.” It now applies to any Tax Court
proceeding “concerning a corporate debtor’s tax liability for a taxable
period the bankruptcy court may determine or concerning the tax liability
of a debtor who is an individual for a taxable period ending before the date
of the order for relief under this title.”
CENTRAL VALLEY v. UNITED STATES 7375
result is separate proceedings in separate courts regarding the
same partnership items. The bankruptcy court’s jurisdiction
over the debtor-partner and its partnership items becomes
exclusive, and the Tax Court’s jurisdiction over the remaining
non-debtor partners and their partnership items is freed of
interference from the debtor-partner’s bankruptcy proceeding.
The Government is, of course, correct that Treasury Regu-
lation § 301.6231(c)-7T is inapplicable in this case because no
partner timely filed a petition for readjustment in Tax Court.
Yet, for the very same reason, there is no need for it. Because
there is no partnership proceeding that would be automatically
stayed by Central Valley’s bankruptcy filing, there is no need
to sever Central Valley as a party by re-characterizing its part-
nership items.
By allowing the TEFRA deadline to lapse, Central Valley
and the other Astropar partners have actually accomplished
what the Treasury Regulations were designed to accomplish
in cases where a petition for readjustment has been filed
within the deadline—a separation between the debtor-partner
and the non-debtor-partners as to the determination of their
respective partnership items and tax liabilities. Obviously, this
raises an additional issue regarding the possible preclusive
effects of Central Valley allowing the TEFRA deadline to
lapse before filing its bankruptcy petition (which we address
in Part V-C infra). But that is a distinct inquiry from the con-
tention that § 6221 of TEFRA implicitly overrides § 505 of
the Bankruptcy Code, which we reject.
C
[13] The Government further argues that permitting the
exercise of bankruptcy jurisdiction over a debtor’s partnership
items conflicts with TEFRA’s purpose of avoiding inconsis-
tent judicial determinations of partnership matters. But while
that purpose is no doubt a valid one, it is not an absolute, as
illustrated by the above discussion of Treasury Regulation
7376 CENTRAL VALLEY v. UNITED STATES
§ 301.6231(c)-7T. The very purpose of that regulation is to
allow separate proceedings in separate tribunals regarding the
same partnership matters. Thus, it cannot be said that TEFRA
mandates consistent and therefore unified treatment among all
partners in all cases.
No doubt, inequities may arise in some cases as a result of
allowing debtor-partners to seek separate determinations of
their partnership items in bankruptcy proceedings. But Con-
gress has provided mechanisms for mitigating any inequities
that may arise in individual cases. In the first place, bank-
ruptcy provides only a limited exception to TEFRA’s general
rule. And secondly, if the inequities in any particular case are
sufficiently great, the Bankruptcy Code has a built-in remedy:
The bankruptcy court may, in its discretion, decline to exer-
cise its authority to redetermine a debtor’s tax liabilities. Sec-
tion 505(a)(1) “is a permissive empowerment—as established
by the operative verb ‘may.’ It is not a mandatory directive.
The assumption of the power is discretionary with the Bank-
ruptcy Court.” Mantz, 343 F.3d at 1215 (internal quotation
marks and citation omitted); accord New Haven Projects, 225
F.3d at 288-89 (recognizing that § 505 permits abstention in
the court’s discretion where “uniformity of assessment is of
significant importance,” among other possible reasons).
In Mantz, we held that even though the bankruptcy court
was not barred by res judicata from considering the debtor’s
tax liability, it “may, in the exercise of its discretion, decline
to redetermine the [debtor’s] tax liability” and may do so
“based on some or all of the reasons underlying the res judi-
cata doctrine.” 343 F.3d at 1215. If the Government believes
that similar reasons justify the district court declining to exer-
cise bankruptcy jurisdiction in this case, it should raise the
issue with the district court in the first instance.
V
[14] Thus far we have determined that § 505(a)(1) of the
Bankruptcy Code generally provides for bankruptcy jurisdic-
CENTRAL VALLEY v. UNITED STATES 7377
tion over a debtor’s tax liability and partnership items, and the
res judicata provision in § 505(a)(2)(A) does not preclude the
exercise of that jurisdiction in this case. Aside from these
Bankruptcy Code provisions, however, the Government
argues that TEFRA requires that preclusive effect be given to
the IRS’s determinations of Central Valley’s partnership
items. It argues that because no Astropar partner filed a peti-
tion for readjustment within TEFRA’s limitations period, the
IRS’s adjustments to Central Valley’s partnership items are
final and conclusive for TEFRA purposes and therefore unre-
viewable in any court.
Again, we disagree. Section 505 provides for bankruptcy
jurisdiction to redetermine a debtor’s tax liabilities notwith-
standing the preclusive effects to which a tax judgment might
otherwise be entitled. See 11 U.S.C. § 505(a)(1) (“whether or
not contested before and adjudicated by a judicial or adminis-
trative tribunal of competent jurisdiction”). TEFRA is no
exception. Contrary to the Government’s suggestion, there is
nothing in TEFRA providing that finality for TEFRA pur-
poses renders a tax matter final and binding for all purposes.
A
The only TEFRA provision cited by the Government that
expressly gives preclusive effect to an FPAA issued by the
IRS is I.R.C. § 6230(c)(4), which provides that an FPAA
“shall be conclusive” as to the treatment of partnership items
on the partnership return. Yet that provision is expressly lim-
ited to a partner’s claim for a refund under the same subsec-
tion. It has no application to petitions for readjustment under
I.R.C. § 6226 or to tax claims initiated by the Government in
bankruptcy proceedings.
Language better supporting the Government’s position can
be found in Randell v. United States, 64 F.3d 101, 108 (2d
Cir. 1995), in which the court determined that it was “pre-
cluded under TEFRA from examining a partnership item in an
7378 CENTRAL VALLEY v. UNITED STATES
individual partner’s proceedings.” The court reasoned: “When
no valid petition is filed, the tax treatment of partnership
items . . . as administratively adjusted by the IRS becomes
conclusively established and may not thereafter be contested.”
Id.But Randell had nothing to do with bankruptcy. It was a
sovereign immunity case involving an individual partner’s
attempt to enjoin the IRS from collecting income taxes
assessed against him under TEFRA. Because such actions are
generally precluded by the Anti-Injunction Act, I.R.C.
§ 7421(a), the issue was whether an exception in I.R.C.
§ 6213(a) applied to Randell’s action. The Second Circuit
held that the exception did not apply because I.R.C.
§ 6230(a)(1) specifically made § 6213(a) inapplicable to
assessments under TEFRA. Randell, 61 F.3d at 107. Thus, the
Act’s general prohibition applied and the Government’s sov-
ereign immunity barred Randell’s action. Id.
This is a far different case. The Second Circuit in Randell
had no occasion to consider a provision anything like § 505
of the Bankruptcy Code. Nor has the Government cited any
Internal Revenue Code section like the Anti-Injunction Act
that would expressly bar Central Valley’s objection to the
Government’s tax claim.
The Tax Court’s decision in Genesis Oil & Gas, Ltd. v.
Comm’r, 93 T.C. 562 (1989), is distinguishable for similar
reasons. The court held that the failure to timely file a § 6266
petition results in the loss of the partner’s “right to contest, in
any court, [the IRS’s] determination in the FPAA.” Id. at 565-
66. But because Genesis was not a bankruptcy case, the court
had no occasion to consider whether the Bankruptcy Code
might require a different result.
B
The Government is certainly correct that TEFRA, as a
later-enacted statute, could have provided an exception to the
CENTRAL VALLEY v. UNITED STATES 7379
res judicata provisions of § 505. But in fact, TEFRA contains
no provision requiring that preclusive effect be given based
on Central Valley’s mere failure to timely pursue its Tax
Court remedies.
TEFRA does incorporate some principles of res judicata in
I.R.C. § 6226; however, none of those provisions apply until
a Tax Court action is filed. For example, consistent with the
concept of privity, subsection (c) provides that all partners are
deemed parties “[i]f an action is brought” in Tax Court. I.R.C.
§ 6226(c). Also, subsection (h) provides that the dismissal of
a § 6226 action is deemed a decision that the FPAA “is cor-
rect”; however, again, this subsection is applicable only “[i]f
an action [is] brought” in Tax Court. Id. § 6226(h).
Contrary to the Government’s reading of TEFRA and
§ 505(a) as conflicting, TEFRA’s limited incorporation of
claim preclusion is consistent with § 505(a). Both statutes
provide for preclusion only after an action has been filed in
Tax Court. See Baker, 74 F.3d at 909; Teal, 16 F.3d at 621
(quoting the legislative history of § 505). Otherwise, there is
no conflict. TEFRA contains no provision stating that an
FPAA has preclusive effect based solely on the failure to
timely pursue TEFRA remedies and notwithstanding the lack
of a Tax Court proceeding. And § 505(a) grants preclusive
effect only if there has been a proceeding and judgment in
Tax Court.
C
In the absence of any express provisions in TEFRA requir-
ing that preclusive effect be given to the FPAA in this case,
if the IRS’s adjustments to Astropar’s partnership returns are
to have any preclusive effect, it must be implied from the stat-
utory limitations period applicable to petitions for readjust-
ment. See I.R.C. § 6226(a), (b)(1). The problem with that
theory, however, is that § 505(a)(1) of the Bankruptcy Code
has consistently been applied to permit a bankruptcy court to
7380 CENTRAL VALLEY v. UNITED STATES
redetermine a debtor’s tax liabilities notwithstanding the debt-
or’s failure to timely pursue its tax law remedies, and notwith-
standing the fact that such a failure renders the matter final
and incontestable in any other court. While finality may
“[o]rdinarily” be the rule, bankruptcy proceedings are, in a
word, different. See City Vending of Muskogee, Inc. v. Okla.
Tax Comm’n, 898 F.2d 122, 124 (10th Cir. 1990).
Several courts have held that § 505(a)(1) allows a taxpayer
to challenge state or local tax assessments in a bankruptcy
proceeding notwithstanding the fact that those assessments
have otherwise become final and conclusive under state law
by virtue of the taxpayer’s failure to timely pursue its state
remedies. See, e.g., In re Hospitality Ventures/Lavista, 314
B.R. 843, 846 (Bankr. N.D. Ga. 2004); Cumberland Farms,
Inc. v. Town of Barnstable (In re Cumberland Farms), 175
B.R. 138 (Bankr. D. Mass. 1994); In re Piper Aircraft Corp.,
171 B.R. 415, 418 (Bankr. S.D. Fla. 1994); In re A.H. Robins
Co., 126 B.R. 227, 228 & n.1 (Bankr. E.D. Va. 1991) (statute
of limitations); Tapp, 16 B.R. at 320 (default judgment).
We are presented with no reason why § 505(a)(1) should
not apply equally in the context of the federal tax laws. The
statute makes no distinction between state and federal law;
rather, it refers to “any tax,” which “encompasses both federal
and state tax liabilities, including . . . federal income taxes
. . . .” New Haven Projects, 225 F.3d at 286 n.2. Nor has this
court made any federal-state distinctions in applying contest-
and-adjudication clauses in subsections (a)(1) and (a)(2)(A).
See, e.g., Mantz, 343 F.3d at 1211-12 (state); Baker, 74 F.3d
at 909 (federal).
We are unpersuaded by the Government’s argument that
the state law cases are distinguishable as instances of federal
preemption under the Supremacy Clause. In fact, § 505 over-
rides state law as an exception to the Full Faith and Credit
Act, 28 U.S.C. § 1738, the federal equivalent of the Full Faith
and Credit Clause, U.S. Const. art. IV, § 1, which applies only
CENTRAL VALLEY v. UNITED STATES 7381
to the States. See Mantz, 343 F.3d at 1214; Tapp, 16 B.R. at
320-21.
[15] Section 505 does include a provision that implicitly
respects the limitations period of the applicable state or fed-
eral tax laws by precluding the exercise of bankruptcy juris-
diction if the debtor has failed to pursue its administrative
remedies. But that provision is in subsection (a)(2)(B), not
(a)(1), and it applies only to refund actions, not to objections
to tax claims asserted by the government. See 11 U.S.C.
§ 505(a)(2)(B). Once again, this is consistent with TEFRA.
The only TEFRA provision cited by the Government that
expressly provides that an FPAA is entitled to preclusive
effect, is also applicable only to refund actions. See I.R.C.
§ 6230(c)(4). In other words, both statutory schemes give
greater preclusive effect to tax assessments in refund actions
by the taxpayer than in deficiency actions by the government.
See Cumberland Farms, 175 B.R. at 142 (noting the policy of
giving greater preclusive effect to taxes paid, which are
quickly spent, in contrast to taxes yet to be collected).
It therefore makes no difference that the statutory limita-
tions period applicable to petitions for readjustment under
TEFRA expired before Central Valley filed for bankruptcy
protection. Because § 505 of the Bankruptcy Code generally
authorizes bankruptcy courts to redetermine a debtor’s tax lia-
bility notwithstanding otherwise applicable statutes of limita-
tions, Central Valley must have actually pursued its TEFRA
remedies in Tax Court for preclusion to apply. See 11 U.S.C.
§ 505(a)(1), (a)(2)(A).
VI
[16] Because § 505(a)(1) of the Bankruptcy Code provides
for bankruptcy jurisdiction over a debtor’s partnership items
and neither § 505(a)(2)(A) nor TEFRA preclude the exercise
of that jurisdiction in this case, the district court erred in con-
cluding that it was required to dismiss Central Valley’s objec-
7382 CENTRAL VALLEY v. UNITED STATES
tion to the Government’s tax claim for lack of subject matter
jurisdiction. We therefore reverse and remand for further pro-
ceedings consistent with this decision.
REVERSED and REMANDED.